1. Financing Land Development Projects
CHAPTER 17
Financing Land Development Projects

2. Financing Land Development
Acquire land
Construct utilities and surface improvements
Resell developed sites to project developers or home builders
What is the demand for the final product?
Individual lots and pads
Is there sufficient land for the development plan?

3. Financing Land Development
All development plans include subdivision of sites within the tract of land.
Highly fragmented, competitive and local business
The developer as a facilitator of the development process

4. Land Development Process
Land acquisition
Developer decision: Should the land be purchased?
Using an option contract
The right to purchase for a specific price
Not an obligation
Set time period and expiration date
Option price paid to land owner to hold the land until the expiration date

5. Land Development Process
Option ties up the land while research is done
Cost of excavating and grading
Topography, drainage, soil condition, subsurface
Demand for potential mix of lots
Supply of similar sites

6. Land Development Process
Estimate of value upon completion
Cost of any improvements to site
Bids necessary
Obtain regulatory approval of plan
Planning commission
Arrange financing

7. Land Development Process
Financing & Development
Three Common Alternatives
Purchase land for cash and secure a loan for improvements
Down payment on land, seller financing of the balance, loan for improvements
Down payment and one loan for land plus improvements

8. Land Development Process
Land Improvement Loans
Draw down
Open end loan
Floating rate
First lien on land and improvements
Loan is paid down as sites are sold
Release Schedule

9. Lender Requirements Loan Submission Package Loan Closing
Detailed project description
Financial data
Regulatory and legal information
Loan Closing
Final Commitment

10. Lender Requirements Additional Concepts Payment Bonds Title Insurance
Labor and material bonds
Completion bonds
Title Insurance
Holdback Provision
Ensure completion of work by subcontractors
Extension Agreement
Gap financing

11. Land Development Costs
Site Acquisition
Hard Costs
Site preparation and utility installation
Soft Costs
Site engineering
Public approval fees
Loan fees
Operating Costs

12. Sales & Repayment Sales estimates drawn from market studies
Matching sales & repayment
Lien release
Release price
Release schedule
Lenders desire a faster repayment rate

13. Financing Land Development
Project Feasibility
Does market value after development exceed all costs?
Net cash flow schedule
Project net present value and IRR